He throws up his hands in exasperation as he recalls the incident, which took place while he was in Singapore in February 2003. In the six years that he worked at Korea National Insurance Corp. (KNIC), Mr. Kim said, bags stuffed with cash were sent to Pyongyang from Singapore, Switzerland, France and Austria for Kim Jong-il’s birthday celebrations. Feb. 16, the North Korean leader’s birthday, is a national holiday in his country.

Once a privileged member of Kim Jong-il’s overseas banking operations, a disillusioned Mr. Kim and his family defected to South Korea in September 2003. They currently live in the United States.

As South Korea, the U.S. and the international community weigh options on how to punish North Korea for sinking a South Korean navy warship, Mr. Kim said the best way would be to cut off the supply of hard cash to Kim Jong-il’s “private economy.”

Mr. Kim discussed the North Korean regime’s secret financial dealings in a wide-ranging interview with The Washington Times last week.

He said KNIC employees were forbidden from discussing cash contributions to Kim Jong-il’s accounts and that records were regularly destroyed. KNIC is just one of the many secretive organizations that annually send cash to the North Korean leader.

“Sanctions to cut off the hard currency revenue for Kim Jong-il and the North Korean elite is very important to put more pressure on the North Korean regime and it might directly affect the regime itself and not the general populace,” Mr. Kim said.

He said North Korea’s clandestine defense industry, which has been linked to weapons shipments to Iran, Syria and Iraq, is the main source of the cash.

“This hard cash is all going to Kim’s pocket, and he is using this to finance the development of [weapons of mass destruction] and nuclear and missile technology,” Mr. Kim said. “He also uses this cash to buy loyalty from his aides, from his elite. We can at least cut off this money line to North Korea. The North Korean people do not benefit from this hard currency income; it all goes to the military, it all goes into the hands of the elite.”

On Monday, South Korean President Lee Myung-bak said his country would defend itself against any future provocations and would take the torpedoing to the U.N. Security Council to seek more sanctions against Pyongyang.

Mr. Lee also told reporters in Seoul that South Korea will cut trade links with the North and ban its merchant ships from using the South’s shipping lanes.

While South Korea will be supported in such action by most of the permanent, veto-wielding members of the Security Council, China will be hesitant to support strong measures against North Korea, analysts say. The government in Beijing is reluctant to pressure North Korea for fear that a collapse of the regime in Pyongyang could trigger a flood of refugees across the border into China.

“China is helping North Korea because it doesn’t want an implosion in North Korea — it is not because they love Kim Jong-il,” said Mr. Kim.

An international report concluded last week that a North Korean torpedo struck the South Korean warship Cheonan in the Yellow Sea near the disputed boundary of the two Koreas on March 26. Forty-six South Korean sailors died in the incident. North Korea has denied responsibility.

Mr. Kim said the international community must enforce tough sanctions on North Korea to serve as a warning to others “that the consequences [of violating international laws] are serious and we ourselves are serious about enforcing this.”

He said the North Korean regime may try to circumvent sanctions, but no large financial institution wants to deal with North Korea. “Singapore, Vietnam … they have shunned their North Korean partners and that side effect has been fatal for North Korea. It will become harder and harder for North Koreans to find channels for international financial operations,” Mr. Kim said.

After U.N. sanctions were imposed, the shipment of North Korean weapons to other countries has been disrupted on more than one occasion. In December, authorities in Thailand intercepted a cargo of arms bound for the Middle East.

“North Korea will sell to anyone who pays cash. … In the Middle East, Iran, Syria and Iraq were the best clients,” Mr. Kim said.

Larry Niksch, a former specialist in Asian affairs at the Congressional Research Service, described North Korea’s relationship with Iran’s Revolutionary Guard Corps as troubling. He said North Korean weapons often end up in the hands of militant organizations such as Hezbollah and Hamas.

The reinsurance scam was another big source of cash for Kim Jong-il’s regime. The government in Pyongyang collected hundreds of millions of dollars from global insurance firms after filing suspicious disaster claims. The regime also generates cash from the sale of counterfeit cigarettes, drugs and U.S. currency.

Another source is China, which is buying up North Korea’s natural resources — coal and iron ore — to fuel its rapid growth.

Mr. Kim said the money is delivered to “Bureau 39” of the Korean Workers’ Party Central Committee. Kim Jong-il created the bureau in the 1970s specifically to collect hard currency, analysts and defectors said. The money is used to purchase luxury goods, including food and alcohol, for Kim Jong-il and other members of the North Korean elite.

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